Fundraising Agency Settles Sweeps Case With 19 States

Newport Creative Communications Inc., an agency specializing in direct mail fundraising and a Direct Marketing Association member, agreed to pay a total of $400,000 in a settlement with 19 states involving allegations of deceptive and misleading sweepstakes mailings, attorneys general of several states said yesterday.

According to several state attorneys general, Newport Creative produced direct mail sweepstakes promotions for more than 30 nonprofit organizations as fundraising devices that were sent to thousands of consumers. The states alleged that the promotions mislead consumers into believing they had won a prize.

"Our investigation found that the sweepstakes contained deceptive phrases and insinuations that likely convinced every consumer that he or she had already won the cash prize or was close to winning," Pennsylvania Attorney General Tom Corbett said in a statement. "In reality, there was only one pre-selected winner in the thousands of sweepstakes entries mailed out. Even more deceptive, if the consumer who received the winning entry failed to submit the confirmation form, then the cash prize was never awarded."

John Pannell, president of Newport Creative Communications Inc., Duxbury, MA, took issue with Corbett's statement as well as other details of the attorney general's press release on the settlement.

"If every consumer that got one of the sweepstakes mailings was convinced they had won, the response rate would have been 95 percent," Pannell said. "Our attorney called that a totally unfounded accusation."

Newport's mailers draw the same kind of response rates that other sweepstakes get, he said.

"We get an average of 10 to 15 percent response from donors, and approximately 40 percent of those who respond send a gift," Pannell said.

The response is good enough that Newport will continue mailing sweepstakes packages, he said.

Under the settlement, Newport Creative admitted no wrongdoing but will pay $400,000 to the states for attorney fees, investigation costs or public protection purposes. It also agreed to follow each state's charitable-solicitations laws and consumer protection laws and to include an insert with all future sweepstakes promotions stating that consumers have not won a prize, the odds of winning and that donating will not increase their chances of winning.

"Most of the promises made in the settlement we were already doing," Pannell said. "We state that no gift is required to win three times in every mail piece."

Newport also made a deal with the states so that if the pre-selected prize winner does not claim the prize by the deadline date, then a consolation prize would be post-selected, according to Pannell.

While the Pennsylvania release also characterized the payment as "restitution," Pannell said that is not the case.

"There were no damages found, and no restitution is being made," he said.

As a DMA member, Newport is required to follow the association's ethical business practices guidelines, which are similar to the promises made in the settlement. They also include stating clearly that no purchase is necessary to win and the rules of the sweepstakes. The guidelines also require that prizes be stated clearly and be awarded in accordance with the rules.

The DMA said the association's Committee on Ethical Business Practice worked with a client of Newport Creative Communications on its promotions practices, and the charity was responsive to the committee's concerns. All issues were resolved in May 2005. The DMA does not discuss the details when companies are cooperative with the committee, so it would not reveal whether the charity was involved in this settlement.

Kristen Bremner covers list news, insert media, privacy and fundraising for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters

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